SA defence suppliers left in shock after Future Submarines deal dumped

Local businesses gearing up for work on Naval Group’s $90bn submarines program are in shock following Thursday’s bombshell U-turn.

Local defence and engineering businesses have been left reeling by Thursday’s bombshell abandonment of Naval Group’s $90bn submarines program, after spending years positioning themselves for contracts with the French shipbuilder.

In the wake of the federal government’s U-turn on submarines, there are now fears many local suppliers will simply walk away from the defence industry given the long lead times and uncertainty surrounding major projects.

Sheet metal manufacturer Rowlands Metalworks is one local company that’s been gearing up for work on major defence projects, including the submarines program.

The company formed a joint venture with French supplier Probent, and business owner Cameron Johnston travelled to Cherbourg early last year as part of a broader effort to build closer ties with French industry.

Mr Johnston said he was surprised by Thursday’s announcement, and was now eager to find out more about opportunities to supply into the nuclear-powered submarines program.

“We’re looking forward to an exciting new prospect – the challenge of getting into a whole new supply chain in a new industry – that’s all pretty exciting,” he said.

Rowlands Metalworks owner Cameron Johnston at his company’s Lonsdale facility. Picture: Tom Huntley

“Of course, we are disappointed that our efforts to date do feel a little in vain – we’d formed a joint venture with a French company and had worked pretty hard at getting that relationship to work.

“Those things don’t happen overnight and we had invested greatly in both capital expense and effort in relationship building, making connections, just a lot of shoe leather.

“We’d be crazy not to (remain interested in the new submarines project) but we’ll certainly need to be measured in terms of determining the best way to approach this before we jump to attention.”

Many small and medium size businesses have been investing heavily in equipment, staff, research and development to prepare themselves for the pipeline of work that was expected to flow across the submarines supply chain.

Defence Teaming Centre chief executive Audra McCarthy said Thursday’s announcement reflected the high level of risk associated with defence projects.

“We know the defence supply chain typically takes industry four to five years to come to fruition and there’s always huge risks involved – the biggest risks are usually for the SMEs because they don’t get any compensation for their investment,” she said.

“The challenge for these SMEs now is deciding whether they want to continue to stay in this line of work, because when it takes four to five years to get involved in these supply chains there’s an opportunity cost involved in that – are they still growing their business in other sectors?

“The fact that the build is remaining here in Adelaide – that’s a great outcome for industry. We know that we’re still going to get work – what we don’t know is the level of that work.”

Osborne-based PMB Defence was expecting a decision on its bid to design and build batteries for Naval Group by early next year.

It was short-listed for the contract alongside Greek company Systems Sunlight, and had invested heavily in the hope of winning long-term work on the future submarines.

PMB Defence chief executive Stephen Faulkner said while his company would support the government’s decision “as best we can”, it represented a long-term challenge for the business.

“As a company that has been aspiring to win the battery work on this program for the past 12 months or so, this change in direction is significant,” he said.

“For context, should we have been successful in winning battery work on the 12 conventional boats, our longer-term production rate was forecast to grow by close to 300 per cent over our currently contracted Collins Class work.

“Should we now win the work to supply back-up batteries to the nuclear version of this program it will reduce to between 30 to 40 per cent of our Collins Class volumes.”

Ms McCarthy said there was a risk many engineering firms and manufacturers would walk away from the defence industry in response to the federal government’s U-turn on submarines, and it was important for government to play a leading role in mitigating that risk.

“We’ll be lobbying government to have better support and grant programs available to industry to better meet the requirements and nuances of the defence industry,” she said.

“Industry needs commitment and dedication – they can’t have the indecisive approach that we’re seeing here if we want industry to remain engaged in this sector.”